JPMorgan has executed its first live trade on a public blockchain using decentralized finance (DeFi), tokenized deposits, and verifiable credentials. The development will go down in history as the first industry pilot for the digital asset and decentralized finance industry.
JPMorgan runs an industry pilot for the digital asset and DeFi
This morning, JPMorgan, in collaboration with DBS Bank and SBI Digital Asset Holdings, executed a currency trade involving tokenized Japanese Yen (JPY) and Singapore Dollar (SGD) deposits. The transaction occurred on Polygon Technology through a modified fork of Aave Arc to enable the manual setting for the interest and FTX rates.
The news followed an official media release by the Monetary Authority of Singapore (MAS) on Wednesday, November 2, disclosing that the asset manager had completed its first live trades. JPMorgan asset management has been exploring potential DeFi applications across wholesale funding markets and, with this record of accomplishment, has become the first industry pilot under MAS’ Project Guardian.
Speaking about the development, the MAS’ Chief FinTech Officer, Mr. Sopnendu Mohanty, said:
“The live pilots led by industry participants demonstrate that with the appropriate guardrails in place, digital assets and DeFi have the potential to transform capital markets.”
MAS’ Project Guardian
The Monetary Authority of Singapore introduced Project Guardian in May 2022 and has since engaged with players in the financial sector to identify critical areas for collaboration. The project focuses on open, interoperable networks, trust anchors, asset tokenization, and institutional-grade DeFi protocols. The areas cited include performing industry pilots with financial institutions and FinTechs across Singapore and other jurisdictions for better asset tokenization for financial services.
According to the media release, such pilots enable the industry to spot opportunities for unlocking economic value and surface potential risk management issues. Another collaboration area is investigating regulatory and risk management implications concerning tokenized asset transactions. This includes the kind of attention industry regulation gives tokenized liabilities and the respective governance for institutional decentralized finance structures. This, according to the media release, would promote oversight and accountability.
The statement also notes developing technology standards as an area of collaboration to bolster interoperability across the digital asset ecosystems. This would facilitate cross-currency transactions of tokenized assets worldwide first by establishing a common identity and access framework built atop trust anchors like regulated financial institutions that screen, verify and issue verifiable credentials to organizations that want to be involved in DeFi protocols.
DeFihas made it possible for institutions to perform financial transactions with each other directly via smart contracts without the need for intermediaries. Before this move by JPMorgan, many other industry pilots had been deployed for testing the application of asset tokenization and DeFi across a broader range of use cases within the financial space.
The industry pilot between DBS Bank, SBI Digital Asset Holdings, and JPMorgan, performing foreign exchange and government bond transactions against liquidity pools, was successful. It involved cross-currency transactions conducted in real-time with Japanese Government Bonds, tokenized Japanese Yen (JPY), tokenized Singapore Dollar (SGD), and tokenized Singapore Government Securities Bonds. Moreover, the project heads also simulated exercises with activities such as buying and selling tokenized government bonds.
An excerpt from the media release reads:
“The real-time transactions are testament to the fact that cross-currency transactions of tokenized assets ‘can be traded, cleared and settled’ instantaneously between direct participants without third party involvement.”
The costs involved in trade execution are reduced significantly by eliminating the ‘third-party factor’ and the management of bilateral counterparty trading relationships as envisaged in present-day’s over-the-counter (OTC) markets.
MAS to launch two new industry pilots
In collaboration with DBS Bank, JPMorgan, and SBI Digital Asset Holdings, Oliver Wyman Forum has published a whitepaper to provide an overview of lessons learned from the first pilot. The whitepaper also details the perquisites of digital asset interoperability and transaction efficiency. With these, the forum recommends introducing these findings into financial markets by institutional DeFi protocols.
Following lessons from the industry pilots, MAS is looking to launch two additional industry pilots, trade finance and wealth management. With this, the Monetary Authority of Singapore is welcoming more proposals from the industry regarding the focus areas of Project Guardian. The proposals will be submitted to the FinTech Regulatory Sandbox for live experimentation.
